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Recently, the popular press has devoted a high level of coverage to venture-capital-backed IPOs. The news of Facebook’s S-1 filing and the success of recent VC-backed IPOs such as CafePress, Vocera, Millennial Media, and ExactTarget have excited investors and led to some speculation that the IPO market might be over-heating. However, it may be more accurate to state that the VC-backed IPO market is actually thawing, given the tightly sealed IPO window over the past few years. In contrast to the number of IPOs since 2008, the rate of the number of IPOs today seems to be increasing rapidly:

﻿﻿(Source: Thomson One)

However, when we look back further in time, we see that not only are years 2010, 2011, and 2012 pro forma well below the 1999 and 2000 IPO numbers, they are also short of every year in the 1990s, as well as in 2004 and 2007:

(Source: Thomson One)

Furthermore, it is interesting to note that the number of IPOs has been far outstripped by the number of M&As since the 1990s. The chart below compares the frequency of IPOs and M&As since 1990, with the numbers indexed to 1990 and only those M&As greater than $4MM included in the data (to note, the smallest IPO was NuVim, Inc., which IPO’d in 2005 at a valuation of $4.6MM). We do recognize that there are potential issues with the reporting by any database (for example, not all M&As are included and valuations for most M&As are not captured in the Thomson One database.) However, the data still tells an interesting story which conforms to what we have seen with the M&A market in the past several years:

(Source: Thomson One)

With this data in mind, it will be interesting to see if the JOBS Act has the desired effect of increasing the number of IPOs occurring each year. Although the bill does make the regulatory requirements for “emerging growth companies” less onerous and raises the Regulation A threshold, it also raises the cap on private shareholders from 500 to 2,000. The 500 shareholder limit was a major factor in driving several large VC-backed companies to ultimately file their S-1; now, with the JOBS Act, companies can wait even longer to IPO.

Overall, it is exciting to see more IPOs but also important to note that the situation seems to be merely getting back to normal. If the IPO market maintains this year's momentum it will be close to, but short of, the average number of IPOs between 1997 and the present. Also, although it is a step in the right direction, there are several factors which have contributed to the declining frequency of IPOs, and it is not clear that the JOBS Act is the silver bullet to fix the situation.